The United States District Court for the Northern District of Georgia recently granted a title insurance company’s motion to dismiss claims for breach of contract and conversion, finding that: (1) the closing protection letter at issue was not in effect at the time of the closing due to a subsequently-issued letter; and (2) the lender’s conversion claim was precluded under Georgia law. See First IC Bank v. N. Am. Title Ins. Co., 2021 WL 732354 (N.D. Ga. Jan. 21, 2021). In the case, a lender issued a loan to finance the purchase of a property located in Johns Creek, Georgia. The loan agreement provided that a portion of the loan would be used to satisfy an existing security interest, thereby giving the lender a first priority interest in the property after the closing. Prior to the closing, the closing attorney, acting on behalf of Defendant North American Title Insurance Company (“North American”), issued a closing protection letter which confirmed North American’s agreement to indemnify the lender for certain potential losses in connection with the closing on the sale of the property. Three weeks later, unbeknownst to the lender, North American terminated the closing attorney as the issuing agent and Defendant Investors Title Insurance Company (“Investors”) issued a second closing protection letter. According to the lender, the closing attorney did not inform the lender of the change in title insurance companies or provide the lender with a copy of the second closing protection letter. On the date of the closing, the lender sent the closing attorney its closing instructions and wired the funds for the purchase of the property. However, according to the lender, the closing attorney misappropriated the settlement funds instead of using them to satisfy the existing loan on the property. To avoid foreclosure proceedings on the property, the lender paid the existing loan. After Investors refused to indemnify the lender pursuant to the closing protection letter, the lender filed an action for breach of contract and conversion solely against North American, and subsequently added Investors as a defendant. North American then moved to dismiss.
The Court granted North American’s motion to dismiss. First, the Court found that the lender’s breach of contract claim against North American must be dismissed because the closing protection letter issued by North American was not in effect at the time of the closing. Investors’ closing protection letter explicitly provided that it “‘supersede[d] and cancel[led] any previous letter or similar agreement for closing protection that applie[d] to the Real Estate Transaction and may not be modified by the Issuing Agent or Approved Attorney.’” Moreover, the lender’s wiring of money to the closing agent constituted acceptance of Investors’ closing protection letter. The Court also found that even if the closing attorney did not inform the lender of the second closing protection letter, the lender was nonetheless charged with constructive notice. Here, the closing attorney acted as the lender’s agent for closing at all relevant times, and “‘[u]nder Georgia law, the knowledge of an agent is imputed to the principal.’” Further, “an agent’s actions are binding on, and enforceable against, the principal.” The lender was also charged with actual notice because the lender reviewed the settlement statement, which expressly provided that the closing attorney used the settlement funds to pay Investors. Second, the Court found that the conversion claim must be dismissed because although the lender wired the closing attorney a specific and identifiable amount of money, the lender only sought to recover the amount paid to satisfy the existing security interest on the property. In other words, the lender sought to “‘recover a certain amount of money generally.’” However, “[t]his is precisely the type of conversion claim precluded by Georgia law.” Based on the foregoing, the Court granted North American’s motion to dismiss and dismissed the lender’s claims against North American with prejudice.